Planned changes in CIT – introduction of reduced CIT rate of 9%

10 September 2018

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On August 24, 2018, a draft of the Act amending the Personal Income Tax Act, the Corporate Income Tax Act, the Tax Ordinance Act and some other laws was published on the website of the Government Legislation Center. The draft provides for a number of important changes in the tax law.

One of them is the introduction of a preferential CIT rate of 9% for the group of entities classified as small taxpayers and entities starting their business activity.

Limits on application of the rate to capital gains income

Pursuant to the draft amendment, the reduced 9% rate will apply only to revenue (income) other than capital gains.

Entities entitled to use the reduced CIT rate of 9%

The possibility to use the reduced rate will apply to taxpayers only when their revenue in the given (current) tax year does not exceed the equivalent of EUR 1.2 million.

The reduced 9% CIT rate can be used by:

entities with the status of a small taxpayer (determined on the basis of the given entity’s sales revenue in the previous year, which cannot exceed the equivalent of EUR 1.2 million), and entities whose profitability (defined as ratio of income to revenue) does not exceed 33%,

entities starting their business activity – in their first tax year.

Exemptions

The draft act includes a number of conditions that exclude the possibility of applying the preferential 9% rate. The following will be unable to use this possibility:

taxpayers created as are result of restructuring (i.e., a contribution was made in the form of a company previously run by the entity making the contribution, an organised part of a company, or the assets of such a company, worth more than the equivalent of EUR 10,000.) – in the year of starting business activities by the taxpayer and in the following year,

taxpayers, who underwent specified restructuring actions (such as a division of a company, or making a contribution to another entity in the form of a company previously run by the taxpayer, an organized part of a company, or the assets of such a company worth more than the equivalent of EUR 10,000, or assets obtained by the taxpayer as a result of liquidation of other taxpayers) – in the year when the division took place or the contribution was made, and in the following year,

taxpayer being part of a capital group.

How to pay advances

Taxpayers entitled to apply the lower rate can pay advances taxed at the lower rate, but only until their revenue in the current tax year exceeds PLN 5 mln. After that threshold has been exceeded, subsequent advances will have to be determined using the standard tax rate.

Entry into force

According to the draft act, the reduced CIT rate of 9% will apply to income (revenue) generated from the first day of the tax year starting after December 31, 2017. Exemptions – pursuant to transitional provisions – will only apply to taxpayers created as a result of restructuring and taxpayers undergoing restructuring in the period between the day following the day of publishing the bill and the day it becomes effective.